Alistair Darling and Gordon Brown are at odds over whether the Chancellor should offer sweeteners to the voters in the pre-election Budget, The Independent understands.
The men staged a show of unity yesterday after Mr Darling launched an astonishing outburst against "the forces of hell" in Downing Street briefing against him.
But the stresses between them have strained preparations for the Budget expected to take place next month. Mr Darling needs to reassure the money markets by setting out a credible plan to halve the national deficit within four years. It could point to areas of public spending that face cuts because of the financial squeeze.
Mr Brown, however, wants the Budget to contain some good news for the voters, either in the form of extra spending or cast-iron promises not to cut budgets to some frontline services. He believes that would help establish political dividing lines with the Tories to exploit during the election campaign.
The differences were underlined when Mr Brown recently indicated that some spending could increase if unemployment levels proved to be lower than forecast. Mr Darling swiftly made clear that any "spare" cash should be used to reduce the deficit.
Mr Darling was asked in a television interview on Tuesday evening about negative briefings against him from anonymous Brown allies after he gave a gloomy interview about the world economy. He said: "I'd done this interview and the forces of hell were unleashed." Asked whether Downing Street was responsible, Mr Darling replied: "Not just them, the Tories as well." He hinted that Damian McBride, the Prime Minister's former political spokesman, had been to blame.
Mr Brown insisted he played no part in the briefings, although he stopped short of denying they had taken place. He said: "Alistair has been a friend of mine for 20 years, we have worked together, our families know each other. We have worked together all this time and we have huge mutual respect for each other."
Labour MPs were divided yesterday over the reasons for the normally mild-mannered Mr Darling's colourful protest about Downing Street's methods. One believed he had simply answered a question too candidly: "Even the most senior politicians can be guilty of a slip of the tongue." Another MP believed it was a calculated warning to Downing Street not to interfere in the Budget – and a bid to stay in his post if Labour win the election or emerge as the biggest party in a hung parliament.
Mr Brown and Mr Darling held a brief meeting yesterday morning as reports of the Chancellor's comments dominated broadcast bulletins. The Prime Minister's spokesman described the encounter as "cordial". Treasury sources denied there were tensions between the men over Budget plans.
They sat next to each other in Prime Minister's Questions as David Cameron claimed they were "at war". At one point as the two men exchanged whispers, Mr Cameron taunted them: "Any closer and they will start kissing!"
Mr Brown retorted that it was the first time the Tory leader had referred to the economy – and added that Mr Darling had been right on all the big decisions before him.
John Bercow, the Speaker, threatened to suspend the sitting after rowdy backbenchers made it almost impossible to hear the furious exchanges. Referring to claims that Downing Street staff rang an anti-bullying helpline, he said that if MPs did not stop shouting, "I might have to ring some sort of helpline myself".
Yesterday Mr McBride, who resigned over emails in which he discussed smearing Conservatives, denied he had undermined the Chancellor while at Number 10. "The idea of Gordon instructing us to brief against Alistair Darling is totally wrong," he said.